Recovery?? Only $1+ Million Homes Gained In Price YoY, Only 2% Of Housing Market

Existing home sales in the US declined in August by 17.7% YoY. But the PRICE of existing home sales tells a worse tale of woe: the only house price segment to gain YoY were $1+ million homes.


Unfortunately, $1+ million homes are only 2% of US housing.


That leaves the other 98% with declining house prices YoY. In short, the middle class loses … again.

Here is why.


So, the wealthiest Americans with higher incomes can meet the DTI requirements.

Are you talking about me?


Some Recovery. US Existing Home Sales Fall 1.8% In August (Down 17.7% YoY) To Pre-Housing Bubble Levels

Ouch! US existing home sales fell 1.8% in August to pre-housing bubble levels. And existing home sales are down 17.7% YoY.


Existing home sales increased in the Northeast and Midwest, but fell in the South and West.


We are not in the same economic climate that we were prior to 2008. Lower real median household income, wage growth and labor participation result in lower ability of borrowers to meet debt-to-income (DTI) requirements resulting in lower mortgage purchase applications and stalled existing home sales.


“Toto, I’ve got a feeling we’re not in (economic) Kansas anymore.”


No we’re not, Toto. We are UNDER the rainbow.

Bond Losses Wiped Out for Treasuries With Dollar Beating All (For The Moment)

The recent strengthening of the US Dollars have offset losses dues to rising Treasury rates (not to mention future expected rises from The Fed’s unwinding of their prodigious balance sheet.

Sept. 22 (Bloomberg) — The prospect of higher U.S. interest rates is proving to be a boon for the biggest owners of Treasuries outside of the Federal Reserve.

While the government bonds have fallen this month as the Fed boosted its forecast for how much rates will rise next year, the dollar climbed to its highest level since 2010 against a broad range of currencies. That’s transformed losses into gains for most foreign holders, who own $6 trillion of Treasuries. The U.S. currency has appreciated so much that Treasuries are the developed world’s best-performing sovereign debt this quarter for investors based in euros, pounds and yen.

Sustaining demand from America’s biggest foreign creditors, such as the Chinese government and Japan’s Kokusai Asset Management Co., is crucial in containing funding costs as the Fed winds down its own extraordinary bond buying and prepares to lift rates for the first time since 2006. With Treasuries offering the highest yields in seven years relative to sovereign bonds worldwide, the dollar’s strength may now help prevent an exodus of overseas investors from upending the $12.2 trillion market for U.S. government debt.

In other words, foreign holders of US Treasury bonds may actually experience currency-adjusted gains despite the rise in the Treasury yields.


Unfortunately for the Federal Reserve, the largest holder of US Treasury debt, they don’t benefit from the strengthening of the US dollar. All others benefit to varying degrees.


Including investors stowing their Treasuries in off-shore banks in El Caribe.

Here is a chart of The Fed’s Balance Sheet that is expected to slow in growth (and hopefully unwind).


Destruction of America’s Middle Class: Mortgage Applications Hit 14 Year Low As Home Affordability Declines

America’s middle class is having a difficult time. They are not sharing equally in the Fed-induced stock market surge and real median household income is the lowest since 1995.


Rising home prices (albeit slowing), stagnant wage growth and rising mortgage rates are leading to a decline in home affordability.

Take the National Association of Realtors Homebuyer Affordability Index. You can see that UNaffordability peaked in 2006 when home prices peaked and real median household income was recovering from the 2001 recession.


You can also see that AFFORDABILITY peaked in 2012 after home price declined and mortgage rates hit a low since 2000. Unfortunately, real median household income had also fallen preventing a true housing recovery.

Mortgage purchase applications remain at a 14 year low (like real median household income, mortgage purchase applications are back to 1995 levels). This results in an affordability gap due to rising home prices, rising mortgage rates and declining/stagnant income.


Unless members of the American Middle Class over substantial holdings of the S&P 500 and/or Commercial Real Estate, there massive Federal Reserve asset purchases and interest rate repression scheme has NOT helped the Middle Class.


Is loosening credit standards the answer? Do you think Federal housing policy should heap MORE debt on households that are already suffering from the aftermath of a housing/credit bubble that burst? I would say no.

The solution is not more debt, it is adopting policies that allow that economy and wages to grow. Not stifle recovery.

So, like in the movie “The Incredible Burt Wonderstone,” we have succeeded in making the Middle Class disappear!



Federal Debt Increased By Over $1 Trillion Since Sept ’13 And $6 Trillion Since Dec ’08 (Wage Growth Down 42%, Real Income Down 4.6%)

Well, the US Federal government has certainly been on a tax, borrow and spend spree since 2009. Just since September 2013, US Federal debt has increased by a whopping, mind-numbing $1.1 trillion. And since December 2008, Federal debt has increased by $6 Trillion. That is a 66% increase in Federal debt since President Obama took office.

And how have wages done with $7.5 trillion in Federal government borrowing? Average wage earnings growth are down 42%. And real median household income is down 4.6%.


According to the NBER, the recession ended in June 2009. But Federal debt continued growing, wages kept falling along with mortgage purchase applications.

If we go back to 2007-2008, Federal government debt had begun to soar. Bailouts, stimulus (that didn’t work), continuing wars, etc. are very expensive … and non-productive.

So, $6 trillion in borrowing since 2009 and wage growth down 42% and real median household income down 4.6%. Spiffy!

So, where has all the money gone? Not into the pockets of the American middle class.


Like the scene in the movie “The Incredible Burt Wonderstone” where Stephen Gray tries to drill a hole into his head … and not have any side effects … The Obama Administration and Congress are hoping to spend, spend and spend and NOT have any side effects. Like having citizens pay back the debt.


Is Mortgage Credit Too Tight? Evidence From The Federal Housing Administration (Credit is NOT Too Tight, Income Is Too Low!)

I was moderating a panel discussion at an excellent symposium yesterday on “stress tests” for banks and regulators hosted by IFE Group. The meme that mortgage credit is too tight was repeated several times, mostly by regulators.

Just for background, here are some tables from the FHA Single Family Origination Trends For June 2014.

First, the percentage of loans in the 640-679 credit score buckets has risen from 24.92% in Jan-March 2009 to 42.09% in Apr-June 2014, a 69% increase for the 640-679 credit score bucket. This growth is hardly “tight.” You will also notice that for the highest credit score bucket of 702-850, the peak share was in 2011 of 37.75% and that has fallen to only 17.40% in 2014, a substantial drop in the highest credit score bucket.


Second, the debt-to-income ratio is now averaging 39.45%, only down slightly from 41.675 in 2009. The only noticeable increase in DTI was for the lowest credit score bucket of 500-619 which fell from 40.09% in 2009 to 35.69% in the last reading. An average of 39.45% DTI is not “too high.”


So if credit score and DTI requirements are not “too high,” then what is the problem? Falling/stagnant real median household income.

Here is a chart of FHA Loan Serious Delinquencies. Notice that the first higher delinquency regime occurred when real median household income fell following the 2001 recession. The second higher delinquency regime followed the decline in real median household income starting in 2008 … and it has not abated as of yet.


As Logan Mohtashami and I keeping trying to remind folks … it is the lack of income that is causing the DTI problem, not too tight credit.

Should lenders and regulators loosen credit (again) to stimulate the mortgage market? The answer is no. We do not want to go through another credit bubble cycle again. Particularly when the gap between home prices and income has widened so much.


Good News! Household Net Worth Hits Record $81.5 Trillion In Q2! Bad News! It May Be All Air! (Few Applying For Mortgage Loans)

Earlier today, the Federal Reserve released its latest Z.1 (Flow of Funds) report for the second quarter. The record new worth was driven largely by the growth in stock market prices.


The bad news? The stock market may simply be a bubble inflated by hot air from The Fed via quantitative easing.


If there really is record net worth (and people believe it), why are so few households applying for mortgage loans?


Income growth has stagnated, but the stock market is roaring along. Yet, no Hindenburg Omen.


Yet we do have Fed Chair Janet Yellen pumping all the air into the stock market blimp that she can.